SYDNEY, Nov 6 Food companies stalking
Australia's Warrnambool Cheese and Butter Factory Company
Holdings Ltd are being lured by the firm's high-tech
milk extracts as much as its basic dairy produce.

The extracts are a core element in health-promoting products
from premium infant formula to bone supplements. Known as
nutraceuticals, the extracts are poised for big growth as Asia
becomes more affluent and diets change.

With the nutraceuticals market in the Asia-Pacific set to be
worth $80 billion by 2017, Warrnambool is sitting pretty. It is
one of just two producers of the extracts in Australia, the only
country in the region with the scale of spare milk capacity
required to produce them.

Extracting just 1 kilogram of lactoferrin, a nutraceutical
used in premium infant formula, takes up to 100,000 litres of
regular milk.

"Critically, most of the countries responsible for the
surging demand in Asia can't produce milk themselves," said
Michael Harvey, dairy analyst at Rabobank. "They need countries
like Australia that have a surplus of milk to export."

Australia has been producing milk below capacity for years
following soaring feed costs and a brutal supermarket price war
that pushed farmgate prices to record lows. The country has the
capacity to add around 2 billion litres to the 9 billion litres
of milk it currently produces each year, exporting about half.

For its part, Warrnambool has almost completed construction
of a specialist A$14 million plant to make lactoferrin. The only
other producer of the neutraceutical in Australia is major
shareholder Bega Cheese Ltd - the company that started
the bid war for Warrnambool.

Big global food and drug companies from Nestle SA
to Pfizer Inc have developed nutraceuticals operations
in other regions. But Warrnambool's comparatively low valuation
after milk price wars has combined with its new lactoferrin
plans and Australia's spare production capacity to put it firmly
on the map as an acquisition target to serve Asia.

Previously little known outside its home base, the
125-year-old company has attracted three full takeover offers
from Bega, fellow shareholder Murray Goulburn Co-operative Co
Ltd and Canada's Saputo Inc since September. Saputo's
bid is the highest at A$449 million ($424 million).

Warrnambool's market value has nearly doubled to around
A$470 million as investors snapped up shares. Those buyers
include Fonterra, the world's largest dairy exporter,
and Japanese drinks maker Kirin Holdings Co Ltd. The
duo has bought stakes in Bega and Warrnambool respectively and
are hovering with intent to influence consolidation.

For Fonterra, diversifying geographically would also reduce
reputational risk after the recall of baby formula products in
China and other Asian countries due to a contamination scare.
Fonterra already makes a nutraceutical formula called Anlene, a
drink intended to improve bone health that is marketed mainly to
the elderly in Asia.

'WHITE GOLD'

The global market for nutraceuticals is expected to grow to
$205 billion by 2017 from $142 billion in 2011, according to
U.S.-based market intelligence agency Transparency Market
Research.

The Asia-Pacific region is expected to account for 39
percent of the global market by 2017, or about $80 billion,
making it the second-largest market after North America.

Lactoferrin illustrates the appeal of nutraceuticals, which
fall short of pharmaceuticals but have demonstrated
physiological benefits, providing protection against chronic
diseases such as cardiovascular illnesses. Dubbed "white gold"
by Australia's media, it fetches $1,000 per kilogram because of
the vast quantities of milk used to make it.

Warrnambool, which relies on exports of traditional dairy
produce for most of its A$500 million in annual sales, said last
week it had signed its first deal to supply lactoferrin in Asia.

As Warrnambool's nutraceuticals drive takes shape, analysts
say the lack of alternative acquisition targets - Bega has share
ownership restrictions in place that will take years to lift -
means higher takeover offers for the target can't be ruled out.

Since Sept. 11, the day before Bega's offer, Warrnambool
shares have surged 88 percent while Bega stock has advanced 67
percent. That compares with a 4.6 percent gain in the S&P/ASX
200 Sydney market index over the same period.

SAO PAULO, Dec 9 The Brazilian government will
extend subsidized credit to companies interested in bidding for
airport operating licenses so long as they agree to strict
governance requirements and to hire an independent advisor to
monitor project execution.

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